This week's rare power outage in Victoria and the fact that it was controlled quickly demonstrates the resilience of the electricity supply system we have.
Automatic trigger mechanisms caused by smoke closed down the line from the Snowy. This left a 20 per cent hole in supplies at a time when a heatwave boosted demand and some plant in the Latrobe Valley was down for maintenance.
Traders and generators would have been cheering when the price zoomed up from $60 per megawatt/hour towards $10,000. Their joy would have turned to sorrow when the price collapsed as the system operator shut down demand.
The incident was by and large well handled. The market operators, NEMMCO, will doubtless examine it to find ways that they can better shed power to cope with an outage. They may also use the experience to seek out faster ways of transmitting to the market that a real emergency is in the offing.
No electricity system is fail-safe and the Victorian system is generally well managed. Policies could be introduced that gold-plated supply but these would be expensive and probably not worthwhile.
Government policies over recent years have, however, increased the Victorian system's vulnerability to unexpected developments. Among these policies have been the generally unfavourable approach towards the coal-based power that provides 95 per cent of the state's electricity. Most of this government hostility has been a result of its sympathy with and fear of green radicalism. Green radicalism is supported to a considerable degree by the Government, courtesy of the taxpayer.
One rather shameful example of those policies involved the long hold-ups and additional costs imposed on the Hazelwood power station in its expansion and refurbishment plans. These hold-ups resulted from the Government forcing a conventional and relatively modest investment program to be analysed within the context of global environment treaties. Hazelwood itself suffered costs of delays and mandatory changes to its plans that raised its costs by millions of dollars.
The Government has also made its hostility to coal-based power abundantly clear in legislating for increased levels of high-cost renewable energy. It has led policy discussion across Australia in promoting further reductions in carbon dioxide emissions. Such a policy is code for reducing the share of coal within the electricity supply system or requiring new coal-based generators to incur costs of novel measures that increase the ratio of energy to carbon emissions.
All of these policy measures, in effect, raise the risk of new investment and therefore the threshold of returns investors require to give the go-ahead for new plant. This reduces the availability of new plant and increases the vulnerability of the state to unexpected loss of a major plant or transmission line.
Regulatory policies increase the risk exposure of the state to particular supply sources in other ways. The single line linking Victoria to the Snowy and the NSW system passes through national parks. There is a case for building another line, a by-product of which would be reduced vulnerability to a single event. Although by no means commercially proven, it would not be even considered in the current framework of environmental hysteria.
Over the past 10 years, Victoria has stood out in a generally very successful Australian national market as providing reliable electricity at prices that are among the lowest in the world. But there is nothing inevitable about such a performance. It can readily be undermined by poor regulatory arrangements.
Unfortunately, rather than recognising the fragilities of electricity supply and its exposure to various uncertainties, government policy has all too often fanned those uncertainties.
The centrepiece of its energy policy consists of promoting wind power. This offers no advantage in terms of energy security since it is totally uncontrollable.
In spite of there being a bit of a breeze about yesterday, not much electricity came from the wind farms. This is typical: this time last year when South Australia had a peak in demand, the state's extensive wind capacity was only operating at less than 10 per cent.
It is likely to take more events like yesterday's outage to persuade the Government and perhaps the community in general that there is no such thing as a secure and reliable electricity supply.
The pity is that playing politics with electricity to garner green votes is likely to endanger reliability.
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